- Lowering actual healthcare costs that providers incur while delivering care to patients is the key to making healthcare more affordable, according to a new Chilmark Research study.
While payers are reforming claims reimbursement models to reduce utilization and spending, more effective cost management strategies should start within healthcare organizations. Researchers stated that healthcare organizations should focus on reducing utilization, using data analytics to continuously monitor individual healthcare services and costs, and directing patients to more low-cost care facilities.
"If we are truly serious about making healthcare affordable, we first need to reduce the real costs of healthcare, which are the costs providers incur when delivering healthcare services,” stated Rob Tholemeier, Adjunct Analysis and lead author of the report.
“Sadly, our research indicates that few providers can tell you with precision how much cost variability they have in similar admissions, procedures, tests, or anything else. This is unfortunate given the widespread availability of technology, the ubiquity of true cost data at every provider, and the very nature of the healthcare business. Until you understand your costs you cannot do anything about them. The first key to improvement is measurement.”
Researchers found that reducing profits for delivering care would not make healthcare more affordable, but boosting efficiency and effectiveness of care delivery may drive down costs.
The study showed that provider profits only account for two percent of the total healthcare expenditures in the country, follow by profits from global drug organizations (less than two percent) the largest insurance companies (less than one percent).
By eliminating all profits and the net cost of healthcare coverage, patients would still be spending more than $8,500 per person in out-of-pocket expenses, representing a modest $1,000 decrease from the current average.
However, researchers reported that simply reducing utilization of healthcare services may not significantly decrease costs. The current approaches, such as promoting preventative healthcare, discouraging unnecessary treatments, and population health management, have resulted in modest reductions and have not produced substantial return on investment.
Reducing utilization may actually work against market forces that aim to increase access to care, such as Medicaid expansion and aging baby boomers. The strategy could also raise healthcare costs because the majority of goods and services are a fixed price and lower utilization would cause the price to be spread over fewer encounters, the study stated.
Healthcare costs are more likely to go down by employing better cost management and price transparency strategies at the provider level, researchers stated.
“The only thing left to do is fundamentally change the delivery model and how we manage the processes,” wrote the authors of the report. “This will require significant automation and completely rethinking how providers measure, manage, and monitor their costs of providing care.”
“The solution requires better use of technology (particularly analytics), reinvigorating and redefining the role of the CFO and the finance team, getting clinical staff on board, and borrowing best practices from other industries.”
Researchers advised healthcare organizations to implement the True Continuous Costing strategy, which uses available data to pinpoint the actual healthcare costs for providing specific services. Hospitals and physician practices typically use average costs or revenue data to address cost, but these sources of information cannot identify how much it costs to provide certain services.
Some key aspects of the True Continuous Costing model include the following:
• The use of existing healthcare data to document the materials, services, and labor used at each step of the care delivery process, such as EHR data, EHR usage logs, barcode scans, supply chain management, purchasing systems, and billing systems
• Creation of a bill of materials database that details every material used or application of labor for a patient encounter
• Analysis of cost variations, not averages, for services, including an emphasis on identifying unknown drivers of cost
• Real-time feedback loop that allows for regular monitoring
• Exclusion of use charges, ratios of cost to charges, or relative value units in cost calculations
• Quality reporting systems to track cost and quality performance
The data-driven approach is designed to establish a bill of materials for every patient encounter that can be used to create a cost of goods sold report. The bill of material data should be maintained in an analytical repository and used to find cost variations.
Using the bill of materials, healthcare organizations should price out each line item and produce more cost effective care plans.
The study suggested that healthcare organizations implement the True Continuous Costing approach for specific services, such as joint replacements or cardiac catheterization tests, to start.
Additionally, providers can help to reduce healthcare costs by channeling patients to lower-cost care settings, such as freestanding surgical centers, retail clinics, or urgent care facilities. Performing appropriate services at these facilities can save money because there are lower overhead costs and length of patient stay is generally shorter.
By using a combination of data analytics, lower cost facilities, and utilization monitoring, providers could be the starting point for more affordable healthcare.